What is the Balance Sheet Identity in Accounting?
The balance sheet identity is one the most elementary lessons of accounting. However, students learning introductory accounting often find it …
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How Entrepreneurs Value New Business Ideas
The most valuable asset a firm can own is a new idea. New ideas are the genesis for creating wealth and economic advantage over competitors.
Continue ReadingHow the Principle of Incremental Benefits Relates to Corporate Financial Planning
Financial decisions made by investors are based on the incremental benefits obtained by deciding to take one action over alternatives. The incremental …
Continue ReadingHow Valuable are Investment Options in Financial Markets?
When an investor has the right but not the obligation to do something, that investor has an option. Options are valuable because exercising the option …
Continue ReadingThe Value of Comparative Advantage in Competitive Markets
Doing what a company does better than anyone other company has potential to create great wealth. But two questions remain: Is it valuable to anyone …
Continue ReadingA Definition of the Principle of Two-Sided Transactions
The Principle of Self-Interest suggests that people act in their own financial self-interest. Yet it must not be forgotten that other people are …
Continue ReadingAdvantages of a Corporation Over a Partnership or Sole Proprietorship
There are three basic forms of business organizations. Learn about the advantages a corporation enjoys over a partnership or sole proprietorship.
Continue ReadingHow Does Self Interested Behavior Affect Opportunity Cost and Agency Theory?
Behavior is usually the furthest thought in people’s minds when they think of finance. Yet as a social science, finance is governed by the behavior of …
Continue ReadingInvesting and the Behavioral Principle in Competitive Financial Markets
In direct relationship with the signaling principle, the behavioral principle suggests that actions convey valuable information. Knowing when and how …
Continue ReadingTypes of Signals in Financial Markets
In a competitive financial market, decisions of one party provide clear signals to others. Paying attention to the behavior of others can speak …
Continue ReadingDefining a Corporation Using the Accounting Model
Since accounting and finance are indelibly linked, one view of a corporation considers the firm to be a set of financial records that provide a …
Continue ReadingDefining a Corporation with the Contracts Model
The Contracts Model improves upon the imperfections of other corporate models by considering that relationships among entities are not perfect. By …
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